Are you looking to measure your ranch’s profitability accurately? In this article, we’ll explore how to use the Beef-Cattle Standard Performance Analysis (SPA) to measure your ranch’s production, financial, and economic performance.
How do you measure how profitable your ranch is?
As we approach the end of tax season, it’s time to examine our ranch’s profitability and ensure we’re on track to meet our financial goals. While many of us have received cash flow results from our CPA, it’s important to remember that a complete accrual analysis, including production measurements, is needed to measure our profitability accurately.
Managing a profitable and sustainable ranch requires establishing and measuring production, economic, and financial performance objectives. Determining the unit cost and benchmarking with alternative production systems are critical risk management strategies for success.
Beef-Cattle Standard Performance Analysis
That’s where the Beef-Cattle Standard Performance Analysis (SPA) comes in. SPA is an excellent tool for accurately analyzing production, financial, and economic performance to measure progress and goals. It helps identify areas of opportunity or weakness, improve efficiency, and reduce production costs.
Maintaining an efficient production system with low costs is one of the most critical variables for a profitable and sustainable ranch. Using our resources more efficiently could help us reach those goals. An efficient grazing system, a herd size that fits your environment, or an accurate stocking rate will allow us to reduce costs.
Using SPA is an annual process that will help cattlemen improve their ranch profitability by analyzing trends and seeing the results of decisions made. Integrating long-term management strategies and tools such as SPA will help ranchers maintain an efficient unit cost of production, improve production performance, and enhance profits.
Historical Production Costs
Thanks to SPA, we have a unique historical integrated production and finance benchmark system for the beef cattle industry in our state. The database showed that production costs were the most significant variable correlated with ranch profitability. The top 25% of ranches with the highest net income were operations with lower production costs.
As Peter Drucker said, “You Can’t Manage What You Can’t Measure.” We should establish financial and production performance objectives to manage a profitable business. Those could be profit objectives, rate of return on assets and working capital, equity growth, crop and cattle unit cost of production, or grazing efficiency, among other measures.
Implementing SPA in your ranch
At Texas A&M AgriLife Extension, we’ve prepared software and worksheets to help producers of any size use SPA at any time in their operations. These tools will help you organize your production and financial and economic information to analyze your cow-calf enterprise better. Participating producers will receive a report analysis showing their rank with other producers in the database.
Don’t hesitate to contact us for more information about SPA and how to use it in your operation.